-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FOwwY7FYD35yUQBsGgueseZV2KFsYwQYvrqRXtlW6mLurrpVplETm/M7qJ6f2EQY IAGWVeIRHcy/C1DloE/EXA== 0000950147-97-000013.txt : 19970115 0000950147-97-000013.hdr.sgml : 19970115 ACCESSION NUMBER: 0000950147-97-000013 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961130 FILED AS OF DATE: 19970114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVESIS INC CENTRAL INDEX KEY: 0000795574 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 860349350 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-15304 FILM NUMBER: 97505661 BUSINESS ADDRESS: STREET 1: 1001 WEST CLARENDON SUITE 2300 STREET 2: STE 300 CITY: PHOENIX STATE: AZ ZIP: 85013 BUSINESS PHONE: 6029567287 MAIL ADDRESS: STREET 1: 1001 W CLARENDON STREET 2: NO 2300 CITY: PHOENIX STATE: AZ ZIP: 85013 FORMER COMPANY: FORMER CONFORMED NAME: NBS NATIONAL BENEFIT SERVICES INC DATE OF NAME CHANGE: 19910114 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL VISION SERVICES INC DATE OF NAME CHANGE: 19900117 10QSB 1 QUARTERLY REPORT Securities and Exchange Commission Washington D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 30, 1996 ------------------------------------- [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from ________________ to __________________ Commission File Number 0-15304 ------------------------ AVESIS INCORPORATED ------------------------------------------------- (Exact name of small business issuer as specified in its charter) Delaware 86-0349350 - ------------------------------- --------------------------------- (State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.) 100 West Clarendon Avenue, Suite 2300 Phoenix, Arizona 85013 - ------------------------------------------------------------------------------- (Address of principal executive offices) (602) 241 - 3400 ------------------------------------------ (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of outstanding shares of the registrant's Common Stock on January 10, 1996 was 4,100,420. TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (Check One) [ ] Yes [X] No 1 of 10 PART I FINANCIAL INFORMATION Item 1 Financial Statements AVESIS INCORPORATED BALANCE SHEET NOVEMBER 30, 1996 (Unaudited)
ASSETS ------ Current assets: Cash and cash equivalents $ 605,203 Receivables, net 232,207 Prepaid expenses and other 76,918 ------------- Total current assets 914,327 Property and equipment, net 587,548 Deferred debenture issuance costs, net 1,949 Deposits 183,815 ------------- $ 1,687,639 ============= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable $ 279,085 Accrued expenses- Compensation 49,632 Other 134,050 Deferred income 25,374 ------------- Total current liabilities 488,142 Convertible subordinated debentures 189,000 Less unamortized debenture discount (2,065) Accrued rent 108,100 Notes payable to stockholders 160,000 ------------- Total liabilities 943,177 ------------- Stockholders' equity: Preferred stock $.01 par value, authorized 12,000,000 shares: $100 Class A, nonvoting cumulative convertible preferred stock, Series 1, $.01 par value; authorized 1,000,000 shares; none issued and outstanding (liquidation preference of $100 per share) - - - - - $10 Class A, nonvoting cumulative convertible preferred stock, Series 2, $.01 par value; authorized 1,000,000 shares; 388,180 shares issued and outstanding (liquidation preference of $10 per share) 3,882 Class A, voting cumulative convertible preferred stock, Series 3, $.01 par value; authorized 100,000 shares; none issued and outstanding (liquidation preference of $100 per share) - - - - - Common stock of $.01 par value, authorized 12,000,000 shares; 4,100,420 shares issued and outstanding 41,004 Additional paid-in capital 9,949,158 Accumulated deficit (9,249,582) ------------- Net stockholders' equity 744,462 ------------- $ 1,687,639 =============
The accompanying notes are an integral part of these statements. - 2 - AVESIS INCORPORATED STATEMENTS OF OPERATIONS FOR THE QUARTER AND SIX MONTHS ENDED NOVEMBER 30, 1996 AND 1995 (Unaudited)
Quarters Ended Six Months Ended November 30 November 30 November 30 November 30 ------------------------------ ------------------------------- 1996 1995 1996 1995 ------------ ------------ ------------ ------------- Service revenues: Administration fees $ 764,385 $ 1,001,168 $ 1,676,469 $ 2,114,909 Buying group sales 370,892 371,533 759,521 733,687 Provider fees 34,284 51,402 68,336 109,122 Other 30,701 23,614 44,978 51,960 ------------ ------------ ------------ ------------- Total service revenues 1,200,262 1,447,717 2,549,303 3,009,678 Cost of services 875,251 962,876 1,764,060 1,926,272 ------------ ------------ ------------ ------------- Income from services 325,011 484,841 785,244 1,083,406 General and administrative expenses 251,979 296,747 506,944 591,082 Selling and marketing expenses 124,566 228,966 290,951 461,383 ------------ ------------ ------------ ------------- Income (loss) from operations (51,534) (40,872) (12,651) 30,941 ------------ ------------ ------------ ------------- Non-operating income (expense): Other income (expense) (79) (246) (79) 15,171 Interest income 5,995 5,357 12,233 12,019 Interest expense (7,359) (6,805) (14,744) (15,043) ------------ ------------ ------------ ------------- Net non-operating income (expense) (1,443) (1,694) (2,590) 12,147 ------------ ------------ ------------ ------------- Net income (loss) $ (52,977) $ (42,566) $ (15,241) $ 43,088 ============ ============ ============ ============= Net income (loss) per common share $ (0.03) $ (0.03) $ (0.05) $ (0.03) ============= ============ ============ ============= Weighted average common shares and equivalents outstanding 4,100,420 4,075,420 4,100,420 4,075,420 ============= ============ ============ =============
The accompanying notes are an integral part of these statements. - 3 - AVESIS INCORPORATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED NOVEMBER 30, 1996 AND 1995 (Unaudited)
1996 1995 ------------- ------------ Cash flows from operating activities: Net income $ (15,241) $ 43,088 ------------- ------------ Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 84,542 57,600 Gain on fixed asset disposal -0- (8,004) Gain on retirement of debentures -0- (7,067) Provision for losses on accounts receivable (149) (6,619) Changes in assets and liabilities: Decrease in receivables 83,349 41,563 Decrease (increase) in prepaid expenses 36,158 (174,226) Decrease in other assets -0- 23,907 Increase (decrease) in accounts payable 55,175 (3,525) (Decrease) in accrued expenses (2,683) (19,123) (Decrease) in deferred income (5,991) (13,566) Increase in accrued rent 4,899 8,484 ------------- ------------ Total adjustments 255,300 (100,576) ------------- ------------ Net cash provided by (used in) operating activities 240,059 (57,488) ------------- ------------ Cash flows from investing activities: Proceeds from dispositions of property and equipment -0- 8,250 Purchases of property and equipment (70,939) (46,394) ------------- ------------ Net cash (used in) investing activities (70,939) (38,144) ------------- ------------ Cash flows from financing activities: Repurchase of debentures -0- (59,743) ------------- ------------ Net cash (used in) financing activities -0- (59,743) ------------- ------------ Net increase (decrease) in cash and cash equivalents 169,120 (155,375) Cash and cash equivalents, beginning of period 436,083 815,567 ------------- ------------ Cash and cash equivalents, end of period $ 605,203 $ 660,192 ============= ============ Supplemental information: - ------------------------- (a) Interest paid during the period - Debentures -0- 8,978 Notes payable to stockholders -0- 4,839
The accompanying notes are an integral part of these statements. - 4 - AVESIS INCORPORATED NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1996 AND 1995 (Unaudited) 1. The condensed financial statements included herein have been prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared at the fiscal year end have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of Management, the financial statements include all adjustments, consisting only of normal recurring adjustments, necessary in order to make the financial statements not misleading. Results of operations for the periods presented are not necessarily indicative of the results that may be experienced for the full year ending May 31, 1997. 2. For the quarter and six months ended November 30, 1996, loss per common share is computed by dividing net loss, after giving appropriate effect to undeclared preferred stock dividends payable and accrued during the period ($87,342 and $174,684 for the quarter and six months, respectively) by the weighted average number of common shares outstanding during the period. (see Exhibit 11) - 5 - Item 2 Management's Discussion and Analysis or Plan of Operations For the Quarter and Six Months Ended November 30, 1996 and 1995 Except for the historical information contained herein, the discussion in this Form 10-QSB contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, the loss of a significant sponsor, a major change in healthcare legislation, and the discussion in this "Item 2 -- Management's Discussion and Analysis or Plan of Operations," as well as those factors discussed elsewhere herein or in any document incorporated herein by reference. Results of Operations - --------------------- Service revenues totaled $1,200,262 and $2,549,303 for the quarter and six months ended November 30, 1996, compared to $1,447,717 and $3,009,678 for the same periods in fiscal 1996, representing decreases of $247,455 (17%) and $460,375 (15%) for the quarter and six months ended November 30, 1996 compared to the same periods in the prior year, respectively. The Company's administration fees from vision and hearing programs accounted for $472,706 (39%) and $627,195 (43%) of total service revenues for the quarters ended November 30, 1996 and 1995, respectively, and $973,997 (38%) and $1,284,131 (43%) of total service revenues for the six months ended November 30, 1996 and 1995, respectively. The decrease in vision and hearing revenue during the current fiscal year was primarily the result of the loss of one sponsor in October 1996. A "sponsor" is a employer, insurance group, or other organization that offers the Company's benefits to it employees/members. The loss of this sponsor reduced total cardholders by approximately 65,000. This loss was partially offset by the addition of a new sponsor that enrolled approximately 32,000 cardholders in the Company's hearing plan. There were approximately 365,000 and 386,000 vision and hearing cardholders as of November 30, 1996 and 1995, respectively. An additional sponsor was signed during January, 1997, the revenues, costs, and number of cardholders associated with this sponsor cannot accurately be determined at this point in time. Vision provider fee revenue declined by $17,106 (33%) and $40,774 (37%) during the quarter and six months ended November 30, 1996 compared to the same periods in fiscal year 1995 due in part to a modification of the Company's agreements with its providers. A provider is a doctor or other practitioner that has agreed to provide services to the Company's benefit plan cardholders. Under the modified agreement, for new sponsors, the providers are not required to pay a fee based on gross sales to that sponsor's members. The Company's dental program accounted for $290,778 (24%) and $448,164 (31%) of total service revenues for the quarters ended November 30, 1996 and 1995, respectively, and $700,669 (27%) and $913,567 (30%) of total service revenues for the six months ended November 30, 1996 and 1995, respectively. The net change in this line of business was due to the loss of 65,000 cardholders, as discussed above, and the addition of approximately 56,000 cardholders from the new sponsor who also enrolled in the Company's dental plan. The revenue derived from the new sponsor is significantly less than the revenue from the lost sponsor on a per cardholder basis. There were approximately 72,500 and 77,000 dental cardholders as of November 30, 1996 and 1995, respectively. On December 30, 1992, the Company completed the sale of its pharmacy line of business to Med Net (formerly Medi-Mail, Inc.) for 298,333 unregistered and 35,000 registered shares of Medi-Mail Common Stock. The Company contracted to provide certain administrative services with respect to the pharmacy line of business until December 31, 1993. However, due to delays encountered by Medi-Mail during the conversion of the claims processing, the Company entered into a month to month agreement to continue to provide administrative services to Medi-Mail. Medi-Mail terminated the agreement in August 1995; therefore, the Company did not generate any revenues related to the pharmaceutical program for the quarter ended November 30, 1995. Pharmaceutical revenues were $78,281 (3%) of total service revenues during the six months ended November 30, 1995. The Company makes available to its providers a buying group program that enables the provider to purchase frames from the manufacturers at discounts from wholesale costs. These discounted prices are generally lower than a provider could negotiate individually due to the large volume of purchases of the buying group. Buying group revenues accounted for $370,892 (31%) and $371,533 (26%) of total service revenues for the quarters ended November 30, 1996 and 1995, respectively, and $759,521 (30%) and $733,687 (24%) of total service revenues for the six months ended November 30, 1996 and 1995, respectively. -6- Past and future revenues in all lines of business are directly related to the number of cardholders enrolled in the Company's benefit programs. However, there may be significant pricing differences depending on whether the benefit is insured in part or whole by the plan sponsor. The Company's cardholder base principally is derived from a limited number of sponsors. The Company's four largest sponsors account for approximately 69% of the total administration fee revenue for the quarter ended November 30, 1996. Cost of services were $875,251 and $962,876 for the quarters ended November 30, 1996 and 1995, respectively, and $1,764,060 and $1,926,272 for the six months ended November 30, 1996 and 1995, respectively. Cost of services decreased $87,625 (9%) and $162,212 (8%) for the quarter and six months ended November 30, 1996, respectively, compared to the same periods in the prior fiscal year. These costs primarily relate to servicing cardholders, providers, and sponsors under the Company's vision, hearing and dental benefit programs as well as the cost of frames that are sold through the Company's buying group program as discussed above. The decrease in cost of services during the quarter and six months ended November 30, 1996 compared to the same periods in the prior fiscal year was due to the associated decrease in revenue during the quarter. The cost of services did not decrease as greatly as revenue due to the loss of efficiencies of scale related to the volume of claims paid. Additionally, due to the reorganization in the customer service and claims processing area of the Company's activities, where a portion of the middle management was eliminated, the Company realized a decrease in personnel expense included in the cost of services. General and administrative expenses were $251,979 and $296,747 for the quarters ended November 30, 1996 and 1995, respectively, and $506,944 and $591,082 for the six months ended November 30, 1996 and 1995, respectively. General and administrative expenses decreased $44,768 (15%) and $84,138 (14%) for the quarter and six months ended November 30, 1996, respectively, compared to the same periods in the prior fiscal year. These costs include depreciation, legal and professional fees, insurance and consulting fees related to National Health Enterprises (management consultants). The decrease is primarily due to legal fees of approximately $40,000 directly related to a lawsuit settled in the prior fiscal year and a reduction in personnel involved in the finance and accounting functions. Selling and marketing expenses were $124,566 and $249,111 for the quarters ended November 30, 1996 and 1995, respectively, and $290,951 and $448,282 for the six months ended November 30, 1996 and 1995, respectively. Selling and marketing expenses decreased $124,545 (50%) and $157,331 (35%) for the quarter and six months ended November 30, 1996, respectively, compared to the same periods in the prior fiscal year. Selling and marketing expenses include marketing fees, broker commissions, inside sales and marketing salaries and related expenses, travel related to the Company's sales activities and an allocation of other overhead expenses relating to the Company's sales and marketing functions. The decrease is due to the reduction in broker commissions directly related to the reduction in revenue, the outsourcing of a portion of the activities performed by the inside sales and marketing department, and the reduction of travel and entertainment expenditures. A significant amount of the Company's marketing activities has been outsourced to management consultants, National Health Enterprises, for a cost lower than the Company incurred when performing the functions internally. -7- Liquidity and Capital Resources - ------------------------------- The Company had cash and cash equivalents of $605,203 and $660,192 as of November 30, 1996 and 1995, respectively. The net decrease in cash of $54,989 during the period from November 30, 1995 to November 30, 1996 consists of a decrease in cash of $224,109 during the first six months of the period (December 1, 1995 through May 31, 1996), and an increase in cash of $169,120 the last six months of the period (June 1, 1996 through November 30, 1996). The negative cash flow mentioned above is primarily associated with the software development project for the Company's new mainframe computer. The positive cash flow for the six months ended November 30, 1996 is primarily due to the collections of accounts receivable, decrease in prepaid expenses, and timing of vendor payments. The Company is maintaining its policy of paying vendors on a net 45 day basis, and continues to be current on all of its trade accounts payable. Current cash on hand is expected to allow the Company to sustain operations for at least the next twelve months. The Company's management has taken the following steps in order to sustain the viability of the Company and continue positive cash flows: the sublease of unused office space, thereby reducing monthly rent by approximately $8,000; the maintenance of the appropriate level of staff, reducing monthly salary expense by approximately $10,000; the deferral of cash payments made to related parties (National Health Enterprises) for consulting services of approximately $6,000 per month, the balance of $18,000 as of November 30, 1996 is to be repaid on an undetermined future date; and the addition of new sponsors, as previously discussed, replacing most of the reduced number of cardholders caused by the loss of a major sponsor in the prior fiscal year. The Company has also established a chiropractic benefit and is planning to expand its dental network of providers to increase its marketability. -8- PART II OTHER INFORMATION Item 3. Defaults Upon Senior Securities (b) The Company determined not to pay the quarterly dividend otherwise scheduled for payment in January 1996, on shares of its Series 2 Preferred Stock. The dividend is cumulative. The arrearage is $1,456,206 as of November 30, 1996. Item 4. Submission to Matters to a Vote of Security Holders (a) An annual meeting of stockholders of the Company was held on December 18, 1996 (c) There was one matter voted upon at the meeting, as follows: The following nominees were elected for one-year terms as directors of the Company: William R. Cohen William L. Richter Gerald L. Cohen Samuel A. Oolie Kenneth L. Blum, Sr. The results of voting for each nominee were as follows: Number of votes cast for: 3,092,410 Number of votes cast against: 5,660 Number of abstentions 0 Number of non-votes 0 Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are being filed with this report: 11 Statement re: Computation of per Share Earnings 27 Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter ended November 30, 1996. -9- SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AVESIS INCORPORATED - - - - - - - - - - - - - - - - - - - - - - - - (Registrant) Date: 1/13/97 /s/ Neal A. Kempler --------------------- --------------------------------------- Neal A. Kempler, Vice President and Secretary Date: 1/13/97 /s/ Joel H. Alperstein --------------------- --------------------------------------- Joel H. Alperstein, Director of Finance (Principal Financial Officer) -10- EX-11 2 CALCULATION OF EARNINGS PER COMMON SHARE EXHIBIT 11 CALCULATION OF EARNINGS PER COMMON SHARE FOR THE QUARTER AND SIX MONTHS ENDED NOVEMBER 30, 1996
Primary Primary Fully Diluted Fully Diluted Quarter Six Months Quarter Six Months ------------------------------------------------------------- CSE's: Common Stock 4,100,420 4,100,420 4,100,420 4,100,420 Series 2 Preferred (CSE) 970,450 970,450 970,450 970,450 Debentures (non-CSE): # bonds 189 189 189 189 x conversion rate 200 200 200 200 ------------------------------------------------------------- # shares under bonds outstanding 37,800 37,800 37,800 37,800 x exercise price 5 5 5 5 ------------------------------------------------------------- = cash generated 189,000 189,000 189,000 189,000 Market price of common stock: Average $0.25 $0.25 Closing $0.15625 $0.15625 # treasury shares that could be repurchased 756,000 756,000 1,209,600 1,209,600 ------------------------------------------------------------- Incremental # shares 0 0 0 0 Warrants & options: # options & warrants outstanding 5,380,763 5,380,763 5,380,763 5,380,763 x exercise price = cash generated 2,463,981 2,463,981 2,463,981 2,463,981 Market price of common stock: Average $0.25 $0.25 Closing $0.15625 $0.15625 # treasury shares that could be repurchased 9,855,924 9,855,924 15,769,478 15,769,478 ------------------------------------------------------------- Incremental # shares 0 0 0 0 Total CSE 4,100,420 4,100,420 4,100,420 4,100,420 ------------------------------------------------------------- Debentures "if converted" 37,800 37,800 EARNINGS PER SHARE: Preferred Stock Excluded: Net income (52,977) (15,241) (52,977) (15,241) Subtract: preferred stock dividends 87,342 174,684 87,342 174,684 Add: interest expense on non-CSE debt 4,489 8,978 ------------------------------------------------------------- (140,319) (189,925) (135,830) (180,948) Divided by #CSEs + non-CSE debt 4,100,420 4,100,420 4,138,220 4,138,220 ------------------------------------------------------------- EPS (0.03) (0.05) (0.03) (0.04) Preferred Stock Included: Net income (52,977) (15,241) (52,977) (15,241) Add: interest expense on non-CSE debt 4,489 8,978 ------------------------------------------------------------- (52,977) (15,241) (48,488) (6,264) Divided by #CSEs + non-CSE debt 5,070,870 5,070,870 5,108,670 5,108,670 ------------------------------------------------------------- EPS (0.01) (0.00) (0.01) (0.00)
(Preferred Stock is anti-dilutive so it is not included in EPS.) (Debt is Determined to be non-CSE due to the interest rate test.) EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Company's Form 10-QSB for the quarter ended November 30, 1996 and is qualified in its entirety by reference to such financial statements. 1 U.S. Dollars 6-MOS MAY-31-1997 JUN-1-1996 NOV-30-1996 1 605,203 0 252,058 (19,851) 0 914,327 1,671,059 (1,083,511) 1,687,639 488,142 0 0 3,882 41,004 0 1,687,639 0 2,549,303 0 1,764,060 797,895 0 (14,744) (15,241) 0 (15,241) 0 0 0 (15,241) (0.05) (0.04)
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